An age-old riddle for multinational enterprises and consulting firms alike is where to house the transfer pricing (TP) function. TP sits at the hazy junction of tax, legal, and supply chain logistics.
But several recent discussions with in-house transfer pricing leaders points to an emerging trend in TP reporting structures: the operationally-embedded TP guru.
Take a large agricultural-industrial corporation as an example. They hired a seasoned TP professional and placed him squarely in the center of action in their research & development. He's not a tax guy coordinating with operations, but an R&D expert who knows intercompany IP pricing and valuation. He understands the company's proprietary processes and technologies, participates in planning and road-mapping decisions, and feeds this intel directly into his day job of developing and maintaining intercompany royalty policies.
This may not sound like a radical departure from the traditional structure of tax departments checking in regularly with core business teams. But done right, the "TP sleeper agent" approach can solve some chronic tax-ops problems, including:
- The last-to-know woe. Tax and TP leaders often complain that when the business moves, tax only find outs months later out in the public press release. Embedding TP in operations helps business and tax planning happen concurrently.
- The core competency conundrum. Companies and TP folks both do complicated stuff. Separate reporting structures can make it difficult to truly learn the others' core competencies. The TP sleeper agent can do both.
- The data source disaster. Tax and ops sometimes speak different financial languages, because of different ERP systems and sets of books, or both. The TP sleeper agent can translate not only technical concepts, but also financial ones, saving companies valuable time and expense.
There is, of course, no right answer or one-size-fits-all model. TP folks are wily and adaptable creatures, and I've seen them thrive in all sorts of organizational configurations. Some companies may need shaper delineations to maintain clarity of responsibilities and independence.
Meanwhile, TP experts with CPA licenses, customs expertise, or software engineering prowess continue to be worth their weight in gold. But innovative approaches to finding the right home for the TP function can enhance those skills to the immense benefit of the company and its bottom line.
